“ORDER ON PRESERVATION” QUALIFIES AS TEMPORARY INJUNCTIVE RELIEF UNDER FINRA ARBITRATION RULES

Thomas Conner

Be careful what you ask for in an application for a preliminary injunction when the underlying dispute is subject to FINRA arbitration. BMO Capital Markets (“BMO”) filed an Application for a Preliminary Injunction against UBS Securities (“UBS”) and four former BMO employees claiming that UBS poached 19 members of BMO’s Houston’s Acquisitions and Divestitures Group. The parties did not contest that the underlying dispute was subject to FINRA arbitration, but BMO filed its Application for a Preliminary Injunction pursuant to FINRA Rule 13804, which permits a party to seek a temporary injunctive order from a court of competent jurisdiction, if it simultaneously files a statement of claim with FINRA requesting any permanent injunctive relief.

BMO’s Application for a Preliminary Injunction sought injunctive relief that, amongst other requests, barred the defendants from soliciting BMO’s clients or other employees, enjoined the four former BMO employees from disseminating BMO’s confidential information, and required that the four former employees preserve certain evidence. On March 24, 2015, Judge Lynn N. Hughes of the Southern District of Texas entered an “Order on Preservation” that required the four former BMO employees not to disseminate BMO’s confidential information and to preserve evidence, but it was silent as to soliciting BMO’s clients or other employees. UBS then argued to Judge Hughes that the “Order on Preservation” qualified as a temporary injunctive order under FINRA Rule 13804(b)(1), which states that once “a court issues a temporary injunctive order, an arbitration hearing on the request for permanent injunctive relief will begin within 15 days.” Judge Hughes agreed and entered an order staying the case pending the FINRA arbitration.

Judge Hughes was not swayed by BMO’s argument that the “Order on Preservation” was not a temporary injunctive order because it did not provide for all the equitable relief BMO sought in its request for a preliminary injunction, specifically barring the defendants from soliciting BMO’s clients or other employees. Accordingly, a party utilizing FINRA Rule 13804 to seek preliminary injunctive relief should be aware that any order that contains the injunctive elements of either commanding or preventing an act could constitute a temporary injunctive order requiring that all other proceedings take place before a FINRA arbitration panel.